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Bonds still mired in US credit woes

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NINA SUEBSUKCHAROEN
Bangkok Post March 25th 2008

Although prices of valuable commodities such as gold and oil have dropped a little over the past few days, they still remain a fairly safe haven amid the current global credit turmoil.

According to Neil Robbirt, chief executive of the Bangkok-based financial advisory firm Global Investment International, smart investors have been putting their money in commodities, including agricultural products. The price of gold this month reached $1,000 an ounce, an increase of 17% this year, before dropping to $922.95 last Friday. Meanwhile, oil touched $112 a barrel before easing back to $100 last week.

Agricultural goods look promising in light of grain shortages in Australia and North America. Even in Thailand the price of pork and other staples have gone up.

"I have invested my clients more into commodity-based funds as opposed to equity-based funds and I think that is a safer place to be in at the moment," said Mr Robbirt.

He noted that it was not just equity funds in the US and Europe that had been badly shaken by the banking problems in America, but also those in the emerging BRIC counties — Brazil, Russia, India and China — because the American problems were affecting their exports. While the situation dose look precarious, Mr Robbirt believes investors can still play it safe and stick to commodity-based funds for the foreseeable future — around three to six months.

He firmly warns against bonds because most of them have been affected

by widening credit crunch in the US, except for those issued in New Zealand and Australia, which offer much higher interest rates.

As Mr Robbirt sees it, Thailand has a double problem because aside from its exports to the US being threatened by the US credit crisis, the strength of the baht exacerbates the situation.

However, as far as investment in Thailand is concerned, the overall picture seems to be positive, especially when one looks at a large number of property projects in Phuket, Samui, Hua Hin and the Eastern Seaboard. Even so, he expects inflation to be major issue here.

"I think the inflation figures in Thailand are higher than what have been admitted — when they talk about the figures I can't see it. If you base your inflationary figures on commodities such as milk, butter and eggs, the prices have increased in double digits in the last six months over 10%, so how can inflation only be 3%?"

This will become apparent in the property market. Mr Robbirt expects developers will have to revise their budgets for some new projects on which construction has yet to start or progressed very little, because construction costs have risen by 12%. However, those that are well under way or almost completed will not be hit because their developers have already paid for key materials such as steel.

"Why are we suddenly starting to see more land for sale with building permission? Prime land in Sukhumvit Soi 39, Sukhumvit Soi 45, and that has only happened over the two to three weeks?"

"There are a number of reasons for that .One is the cost of building, two it's the credit squeeze on borrowing money, and three the projects — their foreseeable future in the economy — is quite bleak for the rest of this year."

While the higher prices of new products add value to what has already been built, Mr Robbirt pointed out that property owners thinking of selling to lock in good profits would face difficulties because most people were not ready to commit new money yet.

Although Thailand could reach its growth target of 4.5% to 5.5% this year because of the amount of projects already in the system. Mr Robbirt said problems could arise next year.

However, some neighbouring countries look attractive, with Singapore being one of them. "A good place to be is in a Singapore fund and in an equity fund that invests in Singapore because of the casino [being developed on Sentosa]. They have a structured economy and the casino development is going to make a big difference to the revenue coming into Singapore."

Vietnam and Cambodia are showing growth potential as well. "So emerging economies — emerging economies that weren't emerging three years ago, and we are not talking about China and India, we are talking about Cambodia and Vietnam — are certainly interesting areas to be looking at but you have to be very selective in investment because these are such emerging centres, laws for foreigners are still very vague."

The strong magnets of investment, China, India and Brazil, are seeing their growth rates slow because of problems in the rest of the world. Despite this, they will do well in the medium to long term because their economies big enough to sustain some bad weather.

Mr Robbirt advises Thai investors to think about medium - to long-term in-vestment and put some of their cash in Thailand-based mutual funds, particularly those that invest in commodities. "It's important that the investor ask where the money is going to be invested and specifies that he wants a commodities-based investment, so it could well be commodities in Thailand."

Those looking at investing in overseas commodities funds are advised to check out the ones investing in Europe and Australia; the former because there are a lot of oil and gas deposits in emerging Europe and the latter because it is supplying China with a lot of steel.